INDUSTRY UPDATES

Industry Update Volume 22

Bruno Gralpois

7/24/2017

A summary of newsworthy client/agency relationship developments and relevant marketing or agency management trends from the past month. Download a print-friendly version here.

BrunoGralpois_img
Bruno Gralpois Co-Founder & Principal Agency Mania Solutions

Executive Summary – Monthly Recap

We witnessed major media pitches and moves in 16 countries around the world in the first three months of 2017, adding up to a stunning $5.3B total spend under review. Per the research firm COMvergence, $2.5B in spending was under review in the US alone during Q1 2017, for a total of 21 pitches and moves in Q1 alone. Only one retained the incumbent, leading to many new relationships being formed. Globally, the low retention rate in pitches averaged 14%. The top six media agency groups have GroupM in first place with +$840M in total new business, followed by Publicis Media (+$775M), Dentsu Aegis Network (+$495M),Havas Media Group (+$125M) – while Omnicom Media Group and IPG Mediabrands scored negative results close to -$500M. In the meantime, according to WSJ, increasing pressure from marketers has driven ad agencies to take a more transparent approach regarding their respective programmatic buying offerings. WPP, Omnicom and Dentsu now offer more transparent digital buying options.

Note that independent agency RPA (https://www.rpa.com/) captured most of that new business.

Newsworthy reports and recent developments:

At AMS, we approach the agency management discipline as four distinct but complementary practice areas, which is how we categorize the following developments:

TALENT: securing the right talent and resources

Adtech/martech is adding remarkable capabilities to the arsenal of brand advertisers but also much greater complexity, confusion about marketplace offerings, and various integration issues. Chiefmartec.com released its Marketing Technology Landscape chart, “Martech 5000,” in May 2017. The chart represents the marketing technology landscape and its entire ecosystem of suppliers in categories like workflow management, content, social media, or analytics. When the first chart was produced in 2011, there were 150 companies operating in the space. It grew to 350 the following year. In 2014 the chart revealed 1,000 companies.  The latest version has a total of 5,381 logos, up nearly 40% from the previous year.

  • Per Ad Age, with combined revenue of $13.2 billion, the marketing services units of Accenture, PwC, IBM, and Deloitte sit just below WPP, Omnicom, Publicis Groupe, Interpublic, and Dentsu.
  • Industry veterans from AT&T, Tribal DDB, and Hill Holliday launched a new shop called Madison Avenue Social. The concept is:  people are inspired to take action only when something touches them emotionally.
  • Per UK-based market intelligence firm Creativebrief, 72% of marketing chiefs and 68% of agency chiefs agree that “agency structures, processes and pace of delivery” are not evolving as quickly as brands want. Seventy-two percent of CMOs plan to bring more marketing activity in-house over the next three years.
  • Four consultancies (the marketing services units of Accenture, PwC, IBM, and Deloitte) rank among the 10 largest agency companies in the world, with combined revenue of $13.2 billion, mostly through a mix of acquisitions, organic growth, building out new practices, geographic expansion, and consolidation of marketing-related services. A recent Forrester survey indicated that 73% of marketers are open to using consultancies for digital marketing work, including 14% who said they were “very open.”
  • Per RSW/US, 80% of agencies predict that their clients will bring at least some marketing services in-house in 2017.  In its recent survey of in-house agencies, The Boss Group reported that 92% of in-house creative teams identified brand knowledge as part of their value.
  • WPP-owned POSSIBLE purchased consulting company Marketplace Ignition, a six-year-old consulting firm, which helps brands like Hallmark Cards create online retail and advertising strategies on Amazon.
  • MDC Partners shop 72andSunny is expanding its global footprint. The agency launched an Asia-Pacific offering with new offices in Sydney and Singapore to serve clients like eBay, Google and Dropbox.
  • Google continues to roll out targeting capabilities that incorporate deeper and broader intent signals generated by a user’s past searching behavior, not just third-party website browsing. This is a blending of behavioral targeting (search and website browsing) that has not previously been offered to marketers.
  • Havas created a platform called Client Trading Solution, designed to let advertisers monitor their precise ad spend with digital vendors and track real-time performance. The solution includes information about ad exchanges, demand-side platforms, and agency trading desks.
  • Pinterest expanded its image-recognition technology, which it uses to direct users to recommended pins, to include targeted ads relevant to the products pinned by consumers.
  • French entertainment and media group Vivendi has offered $2.56 billion to purchase Groupe Bolloré’s 60% majority share of Havas which counts 20,000 employees. With 2016 global revenue of $2.52 billion, the Paris-based group Havas is less than one-third the size of Interpublic Group of Cos. and barely one eighth the size of WPP.

Noteworthy quotes:
»» “The big consultancies are underestimating the value of creativity [and] the agencies are under- exploiting the value of business analytics.” – Ivan Pollard, Senior VP Strategic Marketing, Coca-Cola Co.

»» “The paradox was that our clients had more tools, information, capability than they’ve ever had for what we call modern marketing, but there was also tons of confusion around how to connect the dots to make it all work.” – John Seifert, CEO, Ogilvy & Mather

»» “We need the talent and creativity of agencies. An in-house model can lead to brands become insular and self-serving and doesn’t give a reality check on whether we are talking to consumers and tapping into cultural trends.” – Lisa Wood, CMO, Atom Bank

»» “Agencies, by design, are always acting as strangers in strange lands. The crossroads where internal brand experts meet with external agency experts is when significant marketing magic can happen.” – Theo Fanning, Executive Creative Director, Traction

WORK: producing great work and outcomes

If creativity is king, innovation is queen as brands look to ways to leverage technology like AI, image-recognition, gaming, voice activation like Alexa, VR and augmented reality, and new emerging technologies (see the Martech 5000 chart below) to engage audiences in new, exciting ways while improving targetability, performance, and measurement. Brands like Domino, Red Bull, Evian, Toyota, and Wendy’s are early adopters, pushing the limits of current platforms.

  • Ferrero-owned hazelnut spread Nutella partnered with Ogilvy Italy to create seven million limited-edition jars, each with a completely unique label. The “Nutella Unica” jars were created using an algorithm that combined dozens of patterns and colors to create millions of combinations. Each one of the combinations was then printed on the label, given a unique ID code to customize it and authenticate it as a unique jar. The jars were sold out in one month. The brand is looking is expand the concept to other EMEA countries.
  • Looking for innovative consumer experience to make Pizza delivery easier, Domino teamed with IFTTT to enable consumers to automate smart home devices, synchronizing with connected devices to turn off the garden sprinkler or turn on the outside lights when a delivery is expected.
  • While Accenture’s media auditing practice is led out of its Media Management unit (separate from its agency business), consulting firms which offer media auditing services and also operate as digital ad agencies may face conflicts of interest or be viewed with concern by clients looking for total impartiality.
  • Around a million Red Bull branded beverage coolers around the world are being connected by AT&T. The connected coolers will provide data relating to performance, temperature stats, and geolocation information, providing shopper frequency insight from door activity from coolers around the world.
  • For the seventh iteration of Evian’s “Live Young” campaign, the new push features the brand’s babies wearing adult-sized clothes and is connected with Snapcodes on 300 million Evian bottles that consumers can scan to access a Snapchat filter.
  • DDB Paris celebrated Play-Doh’s 60th birthday with a campaign called “In the World of Play-Doh,” which shows colorful, imaginative worlds that contain messages for children and parents. The campaign required 948 pots of Play-Doh and 10 months to produce.
  • Saatchi & Saatchi Los Angeles trained IBM’s Watson to write thousands of video spots for a campaign for the Toyota Mirai called “Thousands of Ways to Say Yes.” The ads ran on Facebook with copy targeted to over 100 demographics. In January, the agency created 1,000 Facebook videos with AI to promote the Rav4 crossover.
  • The ANA, Ebiquity, AD/FIN and the Association of Canadian Advertisers issued a report, “Programmatic: Seeing Through the Financial Fog,” highlighting key issues around transparency in the programmatic market, based on a review of 16 billion in-market transactions. The study recommends brand advertisers demand disclosure and accountability from agencies and suppliers, and that they conduct regular data reviews.
  • VoiceLabs lets Alexa developers make money with sponsored messages. The startup launched Sponsored Messages to enable Alexa developers to monetize select “skills” via advertising in accordance with Amazon policy (e.g., ads only in flash briefings and streaming music/radio); early advertisers include ESPN, Wendy’s and Progressive Insurance.
  • Cluep Pics enables advertisers to target consumers with mobile ads based on the photos they post on Facebook, Twitter and Instagram, using image recognition technology to give advertisers insights about users’ interests and lifestyles.
  • MediaMath, AppNexus, LiveIntent, Rocket Fuel, Index Exchange, LiveRamp, and OpenX have teamed to launch an ad-tech consortium to widen access to targeting technologies that rival Google and Facebook.

Noteworthy quotes:

  • “One of the things that the consultancies have going for them is that they are not going through the traditional marketing channels. They are either going top-down through CEOs, or they are even going through the board.” – Sarah Hofstetter, CEO, 360i
  • “For agencies, the critical thing is to find what they’re really good at and where they can really add value. An agency can’t be all things to all men, particularly because marketing now is such a diverse range of disciplines, from highly creative to data focused. It would be ideal [to find an agency that can do that] but I don’t think it’s possible.” – Jennelle Tilling, CMO, KFC
  • “Looking ahead, CMOs should rethink their priorities, and instead of concentrating on marketing cost reduction as their way of delivering improved results, they should step up to the greater challenge: how to get their brands moving again.” – Michael Farmer, Chairman, TrinityP3 USA
  • “Marketing has fundamentally changed from marketing to publishing, and the pace and turnaround is so much faster. What we’re asking for is ideas, but in a different shape and form… We need quick pulses. We’re looking for a great idea that connects and has a little story that we can tell. Our brands need to tell stories every day and that is what we’re briefing for.” Jennelle Tilling, CMO, KFC
  • “One-off projects force people to make things that need to be hammered into the brand (because they don’t really fit) and often end up being abandoned as outlier efforts… The great irony of today’s project movement is its phantom efficiency. The twin ideals that advertisers chase today — innovation and cohesive brand experience — require continuity in development and approach.”- Karen Jacobs, co-founder, Greatest Common Factory

FINANCIALS: driving efficient use of resources

Zero-based budgeting (ZBB) is becoming increasingly more popular as a cost-cutting method rather than using historical benchmarks. According to a January study by Deloitte, 22% of consumer packaged goods (CPG) companies, including Unilever, Kraft-Heinz, Mondelez and Kellogg’s, have adopted zero-based budgeting models. Only 16% of Fortune 1000 companies used this in the last 24 months. However, ZBB is typically more resource-intensive than traditional budgeting and contributes to tough conversations with agency partners.

  • In a report by Forrester Research titled “The End of Advertising as We Know It,” the research firm estimates that advertisers wasted $7.4 billion on poor-quality display ad placement in 2016, and instead suggested brands move budget to campaigns based on virtual assistants like Amazon Echo’s Alexa or Google Home’s Assistant.
  • Per Traackr and Top Rank Marketing, 43% of brands say they’re experimenting with influencer marketing, with most investing less than $100,000 a year, despite the growing interest by brands to tackle influencer marketing.
  • According to the ANA Agency Compensation study titled “Trends in Agency Compensation, 17th Edition,” the use of labor-based fees has decreased for the first time since 2006, along with the use of performance incentives while traditional (non-incentive-based) commissions seem to gain popularity among brands trying to simplify their agency compensation practices in an increasingly complex digital marketing landscape.
  • According to the ANA, an increasing number of brand advertisers indicate that incentives are not working to improve agency performance. While 62% use performance incentives and claim that agency performance has improved, the number of respondents who claim incentives have negatively affected agency performance has significantly increased to 22%.
  • Per Kenshoo Digital Marketing Snapshot; Q1 2017, social ad spending increased 41% year-over-year supported by substantial (153%) growth in video ads, and Dynamic Product Ad (202%) spending. Increased spending on mobile ads (45%) resulted in a 10% rise in total search spend YoY.

Per ANA and WhiteOps, advertising spend lost to bots is expected to hit $6.5 billion worldwide this year, down around 10% from the estimated $7.2 billion lost in 2016. Per the study, 3.6 times as much ad fraud came from sourced rather than non-sourced traffic. Nine percent of desktop display and 22% of video spending was fraudulent.

Noteworthy quotes:

  • “Whereas the auditor or agency adviser in the past was valued for their independence, with some of these lines having become blurred, it is calling their impartiality into question.” – Maarten Albarda, CEO, Flock Associates USA
  • “Around 75% of [Adobe’s marketing budget] goes into digital, and any TV that we do is either addressable or when we do use linear, it’s super surgical.” – Ann Lewnes, CMO Adobe

PERFORMANCE: driving stronger performance and value from the partnership

Mobile is leading discussions about future performance opportunities among advertisers. Per Zenith’s Media Consumption Forecasts, 26% of worldwide media will be consumed via mobile in 2019 compared to 19% last year. They estimate that 71% of all internet consumption will be mobile this year.  Mobile internet consumption increased at an average rate of 44% a year between 2010 and 2016. Traditional media will still account for 69% of global media consumption in 2017 and traditional broadcast TV is still the largest single medium by consumption time.

  • The world’s biggest advertiser, Procter & Gamble, is breaking up duties for its seven-year-old Hawkeye programmatic digital media-buying operation, parting ways with the original tech provider, AudienceScience, in favor of different providers in various parts of the world such as Neustar and The Trade Desk. The move is intended to make better use of media dollars. Neustar is expected to provide the DMP, with The Trade Desk providing the DSP. The moves won’t affect P&G agencies Omnicom’s Hearts & Science and Dentsu Aegis Network’s Carat in North America.
  • Per David Wheldon, President of the World Federation of Advertisers and CMO of RBS, all advertisers will focus on the following areas in 2017: Brand Safety, Business Outcomes, Rebuilding Trust with Agencies, and Great Creativity and Content, building connections that appeal to human needs.
  • The Culture Ministry of China shut down 10 hosting platforms, banned 547 live streamers and ordered 30,235 accounts to shut down, part of an ongoing clampdown on the live streaming space which is estimated at over $3.6 billion last year.
  • Per WFA and Ebiquity, 66% of large multinational brands are planning to increase their online ad expenditures, despite current concerns about viewability, ad fraud, transparency, and issues about measurement. Ninety percent of those surveyed consider viewability a major concern, while 76% regard transparency as a critical issue. Sixty-two percent of global brands are dissatisfied with measurement standards in online advertising. Performance-based brands are anticipating the greatest increases in online ad spending. Eighty-nine percent of advertisers intend to invest more in video.

Noteworthy quotes:

  • “Clients have huge expectations and agencies need to step up and satisfy those expectations…. There needs to be added value that agencies [offer] beyond perhaps what they were doing previously, and that can be strategic consulting or that could be the insights that are required once you use the tools. You’re always going to need people to be able to really provide that extra layer of intelligence.” – Ann Lewnes, CMO Adobe
  • “Facebook and Google have proven the importance of identity-driven, people-based marketing. That’s not an easy concept, but the winners of the future will be those agencies and consultancies that can understand that and deploy it.” – Dave Helmreich, COO, LiveIntent


Agency Mania: don’t panic, it’s a good thing!

By Patricia Berns, Strategic Agency Consultant

1917 – 2017

It’s been 100 years since the founding of the 4A’s (yes it has been that long) and the birth of the traditional Advertising Agency model. Today, the “traditional” model no longer exists. As part of our monthly Industry Update we’ll explore the shifts occurring in the Agency world, the people who lead it, their formula for success, the challenges they face, the impact it has on clients and the evolving model formerly known as “Agency.”

Beyond the Brief

To celebrate its 100th Anniversary, the 4A’s has announced a yearlong initiative in partnership with The Drum, to pull back the curtain and look at an industry full of problem solvers, creative types and analytical minds. To find out, what keeps them going once the briefs are written, the campaigns executed, and the pitches won … or lost.

Beyond the Brief will interview 100 people at 4A’s member agencies — across all disciplines, levels, regions, and agency types — to get a glimpse into what drives them at work and what fuels them in life. And may even inspire you to go “beyond the brief.”

Here’s a snapshot of one of the recent insightful and personal reflections about life in the agency world:

David Angelo, Founder and Chairman, David & Goliath

What is the craziest thing you’re ever seen in a new business pitch?

The day I was invited to sit on the client side of the table. My former NY Lottery client, asked me to sit in on the reviews for the Illinois Lottery. It was an awesome experience to be able to see how agencies are evaluated and what to look for from the client’s perspective. It also exposed pitch antics and revealed that sometimes a client that smiles at you in your pitch is just smiling!”

Go to: www.aaaa.org/beyond-the-brief to read more about what happens Beyond the Brief.

 Blurred Lines: The Agency of the Future?

 2017 will be a turning point for agencies. Today are not just competing with each other, but with data rich consulting firms who, over the last few years, have been aggressively stepping into agency territory and winning significant long-term agency-like engagements.  Accenture, Deloitte, IBM iX, McKinsey and PWC are among the most aggressive players, literally disrupting the status quo. It’s impossible to ignore the impact these new players can have in the future, thanks to well-funded corporate parents.

How are agencies responding and will it be enough?

  • Andrew Swinand, Leo Burnett Group’s North American CEO, announced the launch of “Core” a new offering that brings together the organizations existing data, analytics, research, CRM and Search technology capabilities with the goal of creating more personalized content for clients. When asked if this is a way of competing with the Deloittes and Accentures of the world, he replied “100%.“ Swinand terms it the marriage of EQ and IQ and clearly positions it as a way to compete and win against the consultancies that are using data to drive their competitive advantage.
  • Michael Roth, Chairman CEO IPG, talks about the incursion of consulting companies on agency turf. To counter the Accenture’s and IBM’s of the world, IPG is digging into what they call a “Business Transformation Model” and have R/GA and Huge working with several IPG clients to build the Transformation Model of the future.
  • Scott Hagedorn, CEO of Omnicom’s newly formed Hearts & Science, describes his agency as one that uses technology to scale customer relationships and is designed to leverage the connections between information and creativity. AT&T agreed when they recently selected Hearts and Science after one of the biggest agency reviews in some time because “They are built for a digital and analytically enabled world, unencumbered by more traditional foundations that can be found in legacy agencies.”

AGENCY REVIEWS AND ROSTER CHANGES

According to COMvergence, the US dominates the media pitch activity in Q1 2017 both in terms of spend volume ($2.5B) and number of accounts reviewed (21). Seventy percent of the total spend from global & regional pitches ($1.3B) were concentrated in the US (Walgreens-Boots, MillerCoors, Luxottica). The average retention rate (across the 16 countries covered) is a rather low 14%–except for Italy, Canada, and Poland (60% to 70%) vs. US, India, Australia, France (lower than 10%). Clear dominance of local pitches –representing 76% of the total spend reviewed ($5.3B) across the 16 countries –and almost all reviews in China and India. Ongoing major pitches to be completed in 2017: Global/regional: AB-InBev, Activision Blizzard, Barclays, Carlsberg, Deutsche Telekom, EDF, ING Group, Jaguar Land Rover, P&G (North EU), PSA, Richemont, Sanofi – US: Amgen, Nordstrom, Sprint, Under Armour, US Army.

  • Disclaimer: The reviews listed often capture larger review activity reported in the industry trade press, which we understand to be only a subset of total review activity. Specialist reviews (digital, social, PR, etc.) are rarely reported in the trade press. Also, due to the increasing number of project reviews (versus AOR/retainer reviews), many of those are not receiving media attention and therefore are not included here.
    • Social network company Pinterest selected independent Giant Spoon as its first US media agency of record. The agency will focus on helping the brand facilitate paid partnerships.
    • Retail giant Nordstrom kicked off a review of its media planning and buying business. Incumbent Mindshare and the media agency of record since 2014, which is part of WPP’s GroupM, will not defend.
    • Telecom giant Sprint selected Horizon Media as its new media agency following a review, replacing incumbent MediaVest | Spark, part of Publicis Groupe, its AOR since 2011. The media review follows a creative review that the company held last year, when it selected Droga5 as its creative AOR.
    • Automaker Mitsubishi Motors kicked off a review to find a new US creative shop to replace incumbent 180LA which has been working on the account for seven years. Omnicom’s PHD has handled media planning and buying for Mitsubishi since 2004. The brand is ending its relationship with 180LA amid an apparent dispute over fees.
    • Chinese telecom equipment manufacturer ZTE selected Energy BBDO as its creative AOR in the US following a competitive review. The brand worked with The Baiocco and Maldari Connection previously on assignments.
    • Tech giant Cisco ended its five-year relationship with Goodby Silverstein & Partners. Ogilvy is rejoining the brand’s agency lineup to focus on a new brand launch following a review.
    • H&R Block consolidated media with Publicis Groupe agencies to streamline work and increase integration across channels. The brand extended its partnership with Fallon by giving the agency responsibility for social media strategy and creative and media planning, alongside its existing brand strategy and creative tasks. H&R Block is moving its broadcast media buying to MediaVest | Spark from Omnicom Group’s OMD. Digital media was previously handled by SapientRazorfish, and MediaVest. WPP’s VML previously handled social duties.
    • Tex-Mex food chain Chili’s Bar and Grill terminated its 10-year partnership with IPG’s Hill Holliday who handled creative and media duties and is seeking agencies to work with on a project basis or future broadcast and digital campaigns instead of an AOR relationship.
    • Japanese apparel brand Uniqlo (owned by Fast Retailing) is seeking a creative agency partner in the US. Last year, Uniqlo launched its first global marketing campaign, working on a project basis with Droga5.
    • Belvedere Vodka selected MDC Partners shop KBS as its global creative agency of record following a competitive review. The spirits brand has not had a creative AOR as of late. BBDO parted ways with the brand after the agency won the Bacardi Limited global creative account in 2015.

 

Disclaimer: The AMS Monthly Industry Update is a summary and analysis of newsworthy agency/client developments picked up in recent trade related publications and news media.

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A summary of newsworthy client/agency relationship developments and relevant marketing or agency management trends from the past month. Download a print-friendly version here.